Nordic Mobile Wallets Must Collaborate to Fend off Competition From Global Players

Small but mighty is one way to characterize Nordic countries when it comes to payments innovation.

The small-sized countries in the region like Denmark, Finland and Norway, which have less than six million inhabitants each, have been spearheading digital and mobile payments innovation for decades, bypassing larger economies such as Germany (83 million people) and France (67 million) when it comes to mobile payments adoption.

A lot of it has to do with banks in the region, which have joined forces in the last few decades, investing in innovation and collaborating on various initiatives like a debit card scheme, digital banking IDs and payments infrastructure.

Governments have played a central role, participating directly or lending support to banks to drive innovation. Scandinavians also trust their governments, unlike in other countries, and are willing to share information with them.

According to Claus Bunkenborg, CEO of Denmark-based MobilePay, these reasons explain why the Nordic region has been at the vanguard of innovation when it comes to online and mobile banking, and later with car payments and contactless payments.

“A lot of the prerequisites are already there, both on the infrastructure [side] and also in the mindset of people,” Bunkenborg told PYMNTS in an interview. “We have a very low use of cash, for instance, and you will have a hard time finding a shop anywhere in the Nordics that doesn’t accept contactless payments.”

And with banks driving this innovation, creating mobile payment systems was easy, using their real-time network rails to reduce cost and process transactions faster.

MobilePay, which Bunkenborg heads up, is a prime example of this. Owned by Denmark’s largest bank, Danske Bank, the company launched in Denmark and in Finland as a peer-to-peer (P2P) service in 2013 and has grown to be one of the leading mobile payment providers in the region.

With 4.3 million users (95% of the adult population) in Denmark and 1.8 million (about half of the adult population) in Finland, the mobile wallet company processes about 1.3 million transactions per day, 45% of which go to the roughly 200,000 merchants that accept payments using MobilePay.

“We are the most loved brand in our country, and the last app people want to delete from their phones. We are becoming an indispensable part of people’s everyday lives, and that’s a very strong position that we were quite proud of,” Bunkenborg said.

Taking on Global Giants

Despite the success the firm has achieved in the two countries, Bunkenborg said “payments is a scale business,” and it’s not enough to be a local champion operating in a small country while competing with global players like Apple Pay, Google Pay and PayPal.

In looking to expand further, the company launched a P2P service in Norway in 2015, but that didn’t work out. “This market is very much a winner-takes-all market,” Bunkenborg explained, adding that there’s a “bandwagon effect” where people tend to gather around one local P2P player.

This meant that launching in Norway after the mobile payments company Vipps had already established a presence there blocked any chances of success for the Danish firm. But times have changed, and the goal of penetrating the Norwegian market or taking on global players is now within reach.

In June of this year, three leading mobile payment providers in the region — MobilePay, Vipps and the Finnish company Pivo — agreed to merge their businesses, with a goal to create “Europe’s best and most comprehensive digital wallet” and one of the largest bank-owned mobile payment providers in the region.

The new entity will jointly serve 11 million users and over 330,000 merchants across the three countries. While sharing costs, they will “take all these synergies and reinvest them in new growth, because we want to grow not only in the Nordics, but also throughout Europe,” Bunkenborg said.

A Union of Domestic-Focused Countries

Another focus of the merger is to enable access to mobile cross-border payments between the three countries, which is lacking across the wider European region.

As Bunkenborg noted, “even though European regulators want to harmonize payments in Europe, there are still a lot of obstacles that we need to overcome before we can easily enable cross-border payments.”

Those obstacles, also found in the banking sector, are a result of domestic-focused regulation across the region — and even though several European initiatives are trying to harmonize payments infrastructure, “when you get further up the value chain, things are still quite different,” said Bunkenborg.

For example, the 14-wallet European Mobile Payment Systems Association (EMPSA), which was formed in 2019 to ensure seamless mobile payments across the region, has not been able to take off due to legal and technical challenges linked to know your customer (KYC) and anti-money laundering (AML) rules that differ from one country to another.

The association plans to build interoperability and provide roaming solutions among participating payment systems, bringing together more than 70 million mobile payment users, over a million merchant acceptance points and hundreds of European banks handling several billion transactions per year, according to information on EMPSA’s website.

As Bunkenborg explained, unlike Visa or Mastercard schemes that have an entire ecosystem set up with clear indications of the roles each plays in identifying customers and validating payments, there are between 20 and 30 different European wallets operating under different rules in the region, and bringing them together will take time.

Combining Online and In-Store Payments

While that happens, Bunkenborg said MobilePay will focus on tapping into the opportunities the merger presents in the Nordic region — while investing heavily in eCommerce, which is the area where they see the largest growth driven by the pandemic and more retail commerce shifting online.

In Denmark, there’s been almost 100% year-on-year growth in that sector, he pointed out — and 50% of all eCommerce payments in the country are made through MobilePay.

That puts the wallet at the center of payments growth and innovation, facilitating payments for consumers who don’t need to type their card details each time they shop, and for merchants that have seen checkout completion rates improve when mobile wallets are used.

Another emerging trend they’ll be focusing on is the merger between online and traditional in-store payments, Bunkenborg said. Consumers shop in-person with their mobile phones in hand, he noted, and in-store shopping experiences are becoming more and more digitized, with increasing self-service checkouts driven by mobile phone payments and a surge in online payments taking place in physical stores.

“That’s one of our biggest focus areas, […] and with our user base and the market share we have in online payments, we have a very good starting point there,” he said.